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Month: December 2016

The year now ending has been amazing in a number of ways. The investment markets and developments here at 228 Main contributed to an unusual period for you and us.

In the markets, the things that hurt us in 2015 helped us in 2016. Last year we wrote that the bargains we owned kept getting cheaper. We kept the faith and continued investing in our themes, and the trend changed with a vengeance, to your benefit. One might say that things went our way in 2016.

Our research and trading capabilities were on display all year. When bargains appeared in resource-related high yield bonds, new trading protocols were required. It took new ways of doing things to trade in scores of accounts in a day. We developed strong relationships with good people on the bond trading desk at LPL Financial. Now our capabilities are greater than ever.

Our communications program in the new media continued to build and evolve. www.228Main.com has become a fairly complete library about our philosophy, strategy, methods and tactics. About half of our clients check in daily to see what we think is most interesting or pertinent, via one of three social media sites. The efficiencies we’ve gained by using new media have enabled us to make more outbound on-on-one calls, too.

Back in the real economy, new jobs were created each month. Retail sales and most measures of economic activity moved higher through the year. Business profits are rebounding after a lull. We believe our main themes are appropriate for the times, and sensitive to current conditions.

Our principles remain unchanged, but we are always seeking to improve our strategies and tactics. Avoiding stampedes, owning the orchard for the fruit crop, and seeking the biggest bargains are always going to make sense. We will have to be more effective and efficient than ever, both to perform for you and to meet new regulatory pressures.

Goodbye, 2016! We’ll build on the improvements we made, and use what we learned to seek more opportunities for you. Please write or call with comments or questions.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

No strategy assures success or protects against loss.

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It is that time of year. Prognosticators and pundits issue their forecasts for the year ahead. Wouldn’t it be nice to know what the future holds! Some forecasts are hedged, and don’t really say much. Our prediction is quite specific.

Many of those who have visited our offices know that we actually do have a crystal ball. It forecasts the direction of the stock market for the coming year. It does not say how far the market will go, but it always predicts the direction.

If you knew which way the stock market was going to go, could you make money investing?

Here’s the catch: our crystal ball has only been 76% accurate. So perhaps the question should be, if you knew which way the stock market was going to go 76% of the time, could you make money investing?

Without further ado, here is what my crystal ball says about the direction of the stock market for the year beginning January 1: it will go up.

Long-time observers will not be surprised. The crystal ball always says the market is going up. It has never predicted a down year. And checking back over the past hundred years, according to Standard & Poor’s, it has been right 76% of the time.

We don’t know how well its track record will hold up, but we believe this presents a favorable backdrop to buy bargains, avoid stampedes in the markets, and seek to own the orchard for the fruit crop. In other words, to keep on keeping on, following our plans and strategies.

It is tempting to include a discussion of the economy, the strengths we perceive, and the faint possibility of recession. We’ll leave that to people with more time on their hands. If your plans or planning will be evolving in the new year and require our attention, please call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

W is the person we know who made the longest journey to become an effective investor. Before, he chased performance, jumped on popular investments, and focused only on the short-term action of his holdings.

In Part One we profiled how he managed to learn the correct lesson from the Tech Wreck in the year 2000. W learned that popular but over-priced assets are dangerous. Others learned the wrong lesson, “stocks are dangerous.” Those who learned that lesson generally went on to buy over-priced real estate, or withdrew completely from investing.

W profited by owning equity investments in the recovery from the technology bubble, all the way up to the stock market peak in 2007.

Approaching his retirement years, the ensuing market value losses terrified him. He told us later he did not know how he was going to explain to his wife how he had ruined their financial situation.

Although he was tempted to sell out at low points several times during the financial crisis, three things helped him stay invested, but just barely:

The realization that the damage was probably already done, and selling out would only lock in the losses from the peak.

Our relentless reminders of how market cycles work, and the positive perspective that comes from taking the long view.

The dawning realization that portfolio income is what would supplement his retirement—not the market value that appeared on his statements. “If the fruit crop is big enough, why would you have to worry about what the neighbor would pay you for the orchard?”

There is no polite way to say it. W was a difficult client in these years. We spent a lot of time talking him down from the ledge, so to speak. But it was worth it, for the kind of investor that W became.

When the recovery from the financial crisis arrived, W’s portfolio was in position to potentially rebound, and it did. Free from worry about short term action, he could stand to own bargains that might be volatile in the short run. It paid off.

W went through the valley of the shadow of death, and learned that fear was optional. More accurately, he learned that fear did not need to be acted upon. When he emerged on the far side of the valley with more wealth than ever before, his experience had inoculated him against worrying about short term fluctuations.

W had completed the second part of his journey. He had learned two crucial lessons. But he was not yet fully formed as an effective investor. One more lesson was needed. It came entirely from within himself, with no help from us. We’ll write about that in the next installment.

If you would like to talk about your journey or your situation, please call or write.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

This is a hypothetical situation based on real life examples. Names and circumstances have been changed. To determine which investments or strategies may be appropriate for you, consult your financial advisor prior to investing.

We have seen many clients make the journey to become more effective investors with more productive attitudes, beliefs, and habits. We are proud of the client who made the longest journey of all. Because it has so much potential for so many others, we are telling the story of W, our client, in this series of three posts.

W reached a place in his career where he had money to invest in the late 1990’s. He consulted us about investing—but did not become a client then.

Our principles led us to conclude that the red-hot technology sector, which everybody seemed to be buying, should not be purchased. The bargains we preferred were incredibly boring to W. An annual dividend of a few percent was not appealing compared to the prospect of continued 30-40% gains from the shooting stars.

(Long-time followers will recognize our three principles in this episode: avoid stampedes in the market, find the biggest bargains, “own the orchard for the fruit crop.”)

After the wheels came off the technology boom and W lost half his money, he brought what was left of his portfolio to us.

Many victims of the massive decline that began in 2000 learned the wrong lesson. Although ‘old economy’ companies held their own or gained while tech stocks plummeted, some learned that “the stock market is dangerous.” The correct lesson, of course, is that popular but over-priced assets are dangerous.

W, to his credit, had learned the right lesson. He remembered the advice he did not take, saw how that would have worked, and became a client. Meanwhile, the people who learned the wrong lesson sold out and usually went on to repeat their mistake elsewhere.

This was the first leg of the journey of W, where it really began. But he was not an effective investor, yet. Two more lessons were needed, further along the path.

We’ll be writing about those next two lessons in the days ahead. If you just can’t wait to learn the rest of the story, or want to talk about your situation, please call or write.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

This is a hypothetical situation based on real life examples. Names and circumstances have been changed. To determine which investments or strategies may be appropriate for you, consult your financial advisor prior to investing.

Stock investing involves risk including loss of principal.

The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

We all know people who know what they are about. They have clarity about that for which they strive. They focus on the essentials, and are not easily distracted. They understand the bigger picture, and their place in it.

These folks demonstrate considerable strength, firm adherence to their principles, and they usually are of service or value to others. A surprising fact applies to each of them: they all started out as soft little babies.

We have been privileged to know people who fit this description, and to read the biographies of others. The same pattern exists in people in every walk of life. In learning their stories, we often find considerable adversity or seemingly insurmountable obstacles in their past.

We’re reminded of clay, and pottery. Clay is soft and malleable, fine particles that are quite porous. Pottery is durable, impermeable, fused into a single item—not a mix of soft particles.

More than ten thousand years ago, humans were creating pottery from clay on at least four continents. We learned a long time ago that heating a clay vessel in a hot enough kiln for a long enough time transforms it into pottery.

The heat of the kiln changes the properties of soft clay. Particles fuse together. The chemistry changes. What emerges from the kiln is fully formed, durable and useful.

Perhaps adversity is a kiln that produces change within us.

We would never suggest that problems or misery are good. One cannot know the depths of heartache or pain that another is forced to bear. The point is, much of what happens, happens. It is beyond our control.

We may be able to influence our own reaction, how we choose to spend our energy and our minutes in the face of adversity. Just as we cannot know what others must bear, we are not qualified to judge how others respond. But for each of us, with our own challenges, there may be some choice.

Please call or write if you would like perspective or help on your own situation or circumstances.

Most endeavors in life can be as complicated as you want to make them, or quite simple. The difference is in how you approach them.

We’ve been privileged to know some great coaches and mentors through the years, as well as less-gifted ones. The most effective ones focused on the few things one must do to be successful—not the infinite number of things one must not do.

A positive instruction is complete in itself; negative instructions never end. A softball coach might say “keep your eye on the ball.” That is simple and complete. “Don’t watch the butterflies” can be one of a thousand things to NOT watch, on a list that can never be complete.

We consume vast amounts of ideas and information in our work. But an article with a headline like “Twenty Retirement Mistakes to Avoid” or “Seven Investing Traps” is obviously incomplete. There are, after all, a thousand or a million retirement mistakes or investing traps out there. Knowing about seven or twenty of them cannot be enough.

Instead, we search for those crucial, simple things that are vital for success. For example, our faithful followers know we believe in three principles of investing. Avoid stampedes in the markets, seek the biggest bargains, own the orchard for the fruit crop—there you have it, in a single sentence.

An old-time peddler we knew in our youth had a motto: “Dazzle them with diamonds, baffle them with bullsheet.” Needless to say, that isn’t us. We work diligently to present our ideas clearly and simply, in a fashion that you can work with.

When people tell us they do not understand their advisor, we always wonder whether they’ve been dazzled or baffled. If you would like plain talk about your situation or question, please call or write.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Two ideas about time affect our plans and planning when it comes to investing. There is conflict between these ideas, so we need to examine them more closely.

The concept of compounding wealth over time is alluring and powerful. Something that doubles every eight years would be sixteen times the money in thirty-two years!

What does thirty-two years mean in the context of planning for a lifetime? It is the distance between age 30 and when people begin to retire. Of two people at age 60, one of them might reasonably expect to be alive thirty-two years later. You may think that thirty-two years sounds like a very, very long time. But 62 year olds will tell you that age 30 seems like yesterday. Thirty-two years clearly is a pertinent time frame for life planning.

This is key because long time horizons are generally tied to long term investment results.

The other idea about time rests in one of the ultimate truths of our existence. We may think about the past, or plan for the future, but where we live each second is RIGHT HERE, RIGHT NOW! The survival of the human species in earlier ages probably required us to be vigilant of potential threats and lurking dangers at all times. There was nothing to be gained by thinking about tomorrow if a lion was going to eat you today.

So human nature has a bias toward focusing on the present. This manifests itself in unhelpful ways in modern society. We tend to think that current trends or conditions will persist—even when they are unsustainable. Some of us seem to believe there will always be time later to take care of longer-term priorities or goals. We have trouble picturing future changes.

The focus on the present also may explain why so many lack the context and background that history can provide. We have heard people say “This has never happened before” about many things that are a recurring feature of our history. By not understanding challenges overcome in the past, today’s problems may trigger an unwarranted sense of danger.

The focus on the present is in conflict with the idea of compounding wealth over time. Our role is to try to make sure that people have what they need for the present, have a cushion for emergencies, and keep a long term focus for their long term investments.

In other words, balance is key. Call or write if you would like to talk about the balance in your plans and planning.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.